Download Strategy update

Growth ambitions in the
CEE region
Foto gebouw
Agenda
2

Reminder: KBC’s presence in CEE

Update on economic and financial background

KBC’s opportunities

Update on Poland

Financial outlook
Reminder: KBC’s presence in CEE
CEE profit contribution to KBC Group
Profit contribution, Poland
17%
27%
2005
Q1
2004
2002
2003
2004
-49 m
-297 m
40 m
Share of retail segment
in gross income, CEE Banking
Other
22%
Total assets, bank: 5 bn EUR
Market share, bank: 5% (No. 8)
Market share, life: 2% (No. 7)
Market share, non-life: 12% (No. 2)
SME/Corp
21%
Retail
57%
Profit contribution, CZ + SL
2002
2003
2004
156 m
144 m
168 m
Slovakia
Total assets, bank: 2 bn EUR
Market share, bank: 6% (No. 4)
Market share, life: 4% (No. 8)
Market share, non-life: 2% (No. 7)
Czech Republic
Total assets, bank: 18 bn EUR
Market share, bank: 21% (No. 2)
Market share, life: 8% (No. 5)
Market share, non-life: 4% (No. 6)
Profit contribution, Hungary
Profit contribution, Slovenia
2002
2003
2004
n/a
10
26
Minority stake (34%)
Market share, bank: 41% (No. 1)
Market share, life: 6% (No. 5)
3
2002
2003
2004
16 m
11 m
35 m
Total assets, bank: 7 bn EUR
Market share, bank: 11% (No. 2)
Market share, life: 3% (No. 7)
Market share, non-life: 4% (No. 6)
Agenda
4

Reminder: KBC’s presence in CEE

Update on economic and financial background

KBC’s opportunities

Update on Poland

Financial outlook
Growth fundamentals maintained
Average real GDP growth, 2002-2004 (in %)
Financial services (banking & insurance) in % of GDP (2004)
(Source: IMF)
4.5
Turkey
(1,2; 7,5)
4.0
Slovakia
High flyers
3.5
3.0
2.5
EU-13
(not-EMU)
Czech
Rep.
UK
0%
Ireland
(9,4;5,0)
Poland
3%
4%
5%
6%
7%
8%
EU-15
Hungary
US
US
Spain
2%
Belgium
Slovenia
Sweden
1%
Finland
2.0
Belgium
France
Denmark
1.5
Poland
Hungary
EMU
1.0
Germany
0.5
The Netherlands
Italy
Switzerland
Czech Republic
Portugal
0.0
Slovakia
-0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Slovenia
Average real GDP growth, 1997-2001 (in %)
(Source: Vienna Institute for International Economic Studies)
GDP growth prospects adjusted…
(Source: IMF)
6%
5%
4%
3%

2005/2006 growth
prospects have recently
been reviewed downwards
due to global economic
slowdown

But growth in CEE will still
be at higher rate (+/-2%)
than euro zone
…but positive gap maintained
2%
1%
0%
2004
CEE-5 (forecast 4Q04)
EMU (forecast 4Q04)
5
2005
2006
CEE-5 (forecast 2Q05)
EMU (forecast 2Q05)
9%
EU entry - catalyst for development
Results of one-year EU membership
  Adoption of EU-compatible regulation and legislation
  EU-10 economic growth double of EU-25 (5% vs. 2%)
  Exports to EU-15 rose spectacularly (market share from
2% in 1997 up to probably 4% in 2005)
  FDIs in EU-10 continue (2004: 11 bn EUR or 3% of
CEE-10’s GDP)
  Agricultural subsidies / EU funds
  Stimulation of macroeconomic stability
  Strong financial integration with EU
  Declining inflation (11.7% in 1998 down to 4.3% in
2004)
  No budgetary deterioration
 Decrease in unemployment, though rather slow
Limited impact on KBC of French and
Dutch ‘NO’ to the treaty establishing a
constitution for Europe
KBC is currently operating within EU
countries only
Entry into euro is guaranteed by EU
membership once economic criteria are
met
EBRD transition index (EMU = 100)
50
60
70
80
90
Hungary
Cech Rep
Slovakia
EU accession acts as catalyst
Poland
Slovenia
Baltics
Bulgaria
Romania
Russia
1999
2004
Ukraine
6
(Source: OECD)
UCI-HVB merger may transform
landscape somewhat
7

In the Polish market, the UniCredit-HVB combination will strengthen their
already strong individual positions; the impact will be somewhat less in
Slovakia and very limited in the other markets where KBC is active.

The UniCredit-HVB merger should be seen as much an opportunity as a
threat:
 In Poland, the merger efforts may temporarily weaken the commercial
clout of the parties involved, enabling other parties to increase market
share
 Potential for gaining new customers preferring to be ‘multi-banked’ rather
than ‘uni-banked’
 The merger could trigger the much-needed start of early consolidation in
Poland
 In the short run, UniCredit-HVB may partly divest from some markets,
creating investment opportunities for other players.
Agenda
8

Reminder: KBC’s presence in CEE

Update on economic and financial background

KBC’s opportunities

Update on Poland

Financial outlook
KBC’s opportunities in CEE
9

Unique bancassurance concept, enabling cross-selling

Outstanding track record in the promising AM market

Well positioned in the emerging markets of HNWI and private banking
through the epb know-how

Nationwide branch network in all countries

Introduction of uniform corporate image

Setting up of technology for centralization of processing

Increasing hands-on management approach
Bancassurance to fuel earnings
Achievements:

Transfers of product know-how and implementation of KBC’s distribution model

Setting up of sales-incentive schemes

Unified management responsibility (joint management committee of bank and insurance)

Focus on:

‘Plugged-in’ non-life and life products

Life investment insurance (savings & investment)
Major challenges to exporting the model to CEE:

Re-organization of insurance network & implementation of new branch organization models

Enhancement of pro-active sales approach in both bank branches and agents’ networks

Streamlining of business processes and IT systems in both bank and insurance company
Results are encouraging: realizations in 2004
10
Cross selling rates
Czech Rep
Hungary
Poland
Slovakia
Belgium
Consumer loan X life assurance
83%
n/a
100%
94%
67%
Mortgage loan X life assurance
45%
50%
100%
75%
67%
Mortgage X property insurance
54%
71%
42%
30%
50%
Key developments in AM

Total AUM in CEE as at 31/03/2005: 5.5 bn

AUM grew in 04 by 25%; in Q105 up by 7.3%
Projected growth: 1-2 bn EUR p.a.

Continued high growth of revenue:

CAGR revenue on mutual funds: 15-20%

CAGR revenue on pension funds: 11-14%

Margins on mutual funds already aligned
with rest of Europe

Breakdown of AUM
Pension Funds
8%
Life Assurance
2%
Funds - Retail
42%
Discretionary
Assets
34%
Funds Other
5%
Strong appetite for ‘risk-free’ investments:
money-market and capital-guaranteed funds,
KBC’s speciality
Funds Institutional
9%
Total AUM CE
10.000
Market
share
2003
2004
31/03/200
5
Trend
CZ
19%
22%
23%
++
HU
8%
9%
10%
++
SL
6%
7%
7%
++
SI
-
8%
9%
+
PL
4%
4%
5%
++
9.000
8.000
7.000
6.000
5.000
4.000
11
ok
t/0
6
ju
l/0
6
ap
r/0
6
ja
n/
06
ok
t/0
5
ju
l/0
5
ap
r/0
5
ja
n/
05
ok
t/0
4
ju
l/0
4
ap
r/0
4
ja
n/
04
3.000
Key developments in AM

Market challenger with excellent reputation in foreign funds and as product innovator
(hedge funds, capital-guaranteed funds, etc.)

Adequate risk-control measures and state-of-the-art front-office systems developed over
the past years

Cost/AUM ratios well below European average (around 16 bp vs. 20 bp for Europe)

Through the funds business, new clients are brought in and retained

Existing clients using their deposits to buy funds will replenish their deposit accounts after
one year
Poland:

big succes: capital-guaranteed funds

20% of clients in funds are new clients
Czech Rep:

Recently created AM and pension fund
companies

7.4% market share in mutual funds

Most important market player
Slovenia:

KBC-owned pension funds companies (10%
market share, No. 3 in the market)

Recently created AM company (mutual funds’
market share from 0 to 10% in < 1 year)

Pension fund company with market share of
21% (first player on the market)
Hungary:

12
Slovakia:
3rd in mutual funds (10% market share)
Necessary pension reforms
will lead to growth in pension funds
Assets of insurance companies
and pension funds
Assets in pension funds
Source: FI-AD Financial Advisory (2003)
Source: Eurostat (2003)
6%
160%
% of GDP
2002, % of GDP
5%
140%
1995
120%
2001
4%
Pension
reform
100%
3%
80%
60%
Poland
2%
1st Pillar
(date of
reform)

(1999)
2nd Pillar
(date of
creation)

(1999)
3rd Pillar
(date of
creation)

(1999)
40%
Czech
Rep.
0%
Slovakia

(2005)

(2005)

(1996)
Hungary

(1998)

(1999)

(1993)

(2000)

(2000)
ia
a
ua
n
ia
on
i
Li
th
Es
t
La
tv
a
a
ve
ni
Sl
o
ic
va
ki
ub
l
Sl
o
an
d
R
ep
C
ze
ch
Po
l
H
un
ga
N
U et
ni he
te rl
d an
K
in ds
gd
o
Ire m
la
Sw nd
e
D de
en n
m
a
Fr rk
a
G nc
er e
m
B any
el
g
Po ium
rt
ug
A al
us
tr
i
Sp a
F i a in
nl
an
d
It a
ly
ry
0%

(1994)
1%
20%
Share of elderly (65+) in total population (%)
(Source: Eurostat)
Slovenia
Belgium
EU-15
CEE
0
10
30
Change 1960 - 2000
Change 2000 - 2010
Change 2010 - 2020
Change 2020 - 2030
13
20
Level in 1960
• e.g., in Slovakia:
recently begun 2nd pillar will provide
growth rate of above 25% for CSOB
Pension Fund
Centralized organization for AM
Integration of companies (situation as at 1Q 2005)
Former entities
KBC AM
Poland
4 companies of KB
and Warta
KBC TFI
Czech Rep
4 KBC-owned AM
entities
CSOB AM & IC
Hungary
2 KBC-owned AM
entities (incl. ABNAMRO AM)
K&H SFIM
Results:
 Lower costs (e.g., for Warta in Poland: -37%)
 Independent risk control and compliance
 Better investment process
14
Nationwide branch networks
Density of KBC Group’s branch network
Percent of towns with KBC Group branch
HU
SI
SL
CZ
PL
0%
HU
SI
towns with KBC Group
branch
SL
No. of towns
CZ
20%
40%
60%
80%
100%
PL
0
200
400
600
800
1000
The density of KBC’s branch network is amongst the highest in the CEE region
15

In the Czech Rep.: branches in 123 of the 264 municipalities having more than 5 000 inhabitants.
Additionally, products distributed via dense network of PSB (Postal Bank), which covers all 264
municipalities

In Slovenia: twice as many branches as the next competitor, being present in almost all
municipalities having more than 5 000 inhabitants

In Hungary: presence in all larger towns and in half of the smaller towns. Only OTP has denser
branch network

In Slovakia: branches in 58 of the 124 municipalities with more than 5 000 inhabitants

In Poland: presence in almost all major cities and in 25% of the smaller cities, comparable to or
greater than competitors with similar market share. Further branch openings may be considered
(under review)
Centralized card purchasing &
processing

KBC card business:
 Portfolio of 7.5 million cards, of which 4.5 million smart cards
 Portfolio of 200 000 merchants
 Yearly volume of 500 million transactions

Cards will be one of the key drivers for extending the retail activity in CEE

Central card processing:
 enlarging scale
 standardized technology to prepare
for future developments (SEPA)
to reduce costs
0.12 €
/trans
0.10 €
0.08 €
0.06 €
0.04 €
0.02 €
0.00 €
-
500
1 000
1 500
2 000
2 500
million trans

Poland
15%
KBC Group
Belgium
38%
Hungary
17%
CR/SR
30%
16
Centralized card purchasing:
 Licence contract to use same open technology
 Common supplier contract for purchase of cards
 Common supplier contract for personalizing the cards
Centralized cash management
product
Selecting a Regional Cash Management Bank (Western Europe)
Key decision criteria
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
h
nc
ra
B
o
tw
ne
rk
n
Ba
r
kc
it
ed
gs
t in
ra
m
Co
iv
ti t
pe
e
ng
ici
pr
E
g
t in
xis
la
re
ip
sh
it on
O
nk
ba
n
e
th
re
co
s
er
nk
a
b
t
li s
lC
ra
nt
e
C
t
Fi
rv
se
er
m
to
us
in
Survey of multinational corporates
Ac
Centralisation of Treasury Management
100%
a
re
t
/in
al
n
gio
l
na
tio
a
n
er
d
nd
ta
p
ce
Priority 1
ice
fo
ar
rw
.
rn
te
in
Priority 2
n
io
ut
l
so
ds
ar
d
an
st
.
.a
(e
. ..
IF
ED
a
rn
te
In

Priority 3-5
90%
% of Customer Groups
80%
Currently centralised for
Single corporate e-Banking product:
 Local & cross-border payments and
collections
 Statement reporting

Objective = > 5 000 users after 5 years

Investment payback = 3.5 years
unknown
Planning to centralise in the
next 2 years
nic
tro
c
e
El
g
in
nk
a
b
n
tio
lu
o
s
Benefits:
 Avoid multiple product development
at Group level
 Savings on software licence fees
60%
40%
e
tiv
va
o
n
In

70%
50%
e
nc
se
e
pr
al
n
o
ti
30%
20%
10%
0%
W Eur
17
C E Eur
All of Eur
Centralized processing, cross-border
payments
Processing costs
Standalone
Incl. DZ
Bank Group
100
Incl. KBC
CEE
94
83
Open for
other
parties
Volume of transactions

Business case: co-sourcing of cross-border transactions will lead to lower costs for the
entire KBC Group
2003
Sepa
2010
2004
CEE
pre-study
2005
2006
legal/
fiscal
Implementations
in CEE
18
2007 …
CEE entities: hands-on governance
KBC’s management expats in CEE
54
KBC Group Executive
Committee
31
24
23
17
12
0
2
2000
Expat CEO's
4
0
2001
6
CEE
Management Committee
1
2002
Expat MB members
2005
Steering committees
CEE business
co-ordinators
& task forces
CEE
Directorate
Expat Managers
- General Manager


19
Expats in banking: 35% of Management
Board (of which 2 CEOs)*
Expats in insurance: 28% of Management
Board (of which 4 CEOs)

Many KBC managers involved in CEE
businesses and projects

For each business area, co-ordinators
supervising the area, looking for synergies

CEE Directorate co-ordinates / supervises
* Additionally 6 CEOs in AM and securities subsidiaries
- Co-ordination unit
- Projects unit
- Controlling unit
CEE
Group companies
KBC expats
(+ temporary presence
via various projects)
Agenda
20

Reminder: KBC’s presence in CEE

Update on economic and financial background

KBC’s opportunities

Update on Poland

Financial outlook
Update on Poland

21
Restructuring milestones:
Update on Poland
1Q 2005 achievements:

Portfolio risk profile:
 Portfolio quality improvement (NPL -20% y/y)
 Zero cost of risk in 1Q 2005
 Safe coverage ratio level (67%, one of the highest in the banking sector)

High net profit (23 m 1) and satisfactory ROE (21% 1 vs. 7% in 1Q 2004)

Continuous improvement of Cost/Income ratio (76% 1 vs. 86% in 1Q 2004)

Visible signs of growth acceleration:
 18% increase in housing loans granted in PLN (y/y)
 26% increase in loans granted in CHF(y/y)
 75 000 new savings accounts (y/y) and 187% increase in saving accounts
volume (y/y)
 175% increase of mutual funds (y/y)
Today, we believe we are in a better shape than ever. We even intend to
accelerate organic growth
1
22
Statutory accounts
Agenda
23

Reminder: KBC’s presence in CEE

Update on economic and financial background

KBC’s opportunities

Update on Poland

Financial outlook
Financial outlook
Banking
Insurance
24
RWA
2005-2007 CAGR
Net profit
2005-2007
CAGR
Loan-loss ratio
Mid-term
target
Cost/Income
Mid-term
target
10% – 15%
10% – 15%
< 0.50%
< 60%
Net earned premium
2005-2007
CAGR
Net profit
2004-2007
CAGR
Net Combined Ratio
Mid-term target
15% – 25%
25% - 35%
95%